Insiders Cashing in May Hurt Stocks

Reuters ^ | August 16, 2003

[sarcasm]

ping

[Dog Gone]

In addition, employees sometimes receive stocks on a regular basis as part of their pay packages and selling is a way of cashing in.

That explains all of it to me.

In a period where most stock option were worthless, a bull run will naturally bring people anxious to cash out into the market.

It's not a sign that the recovery is over.

[justalurker]

Insiders Cashing in May Hurt Stocks

---

Ya, think?

[E. Pluribus Unum]

Insiders Cashing in May Hurt Stocks

Sort of like this?

[Who dat?]

It's not a sign that the recovery is over.

Not to me either, but don’t go by me.

I know a couple of companies, now public, where people are nearing retirement. They’ve been granted, and have purchased, company shares for the last 35+ years. Those shares have accumulated and split many times.

Today they’re sitting on 15 – 30+ million dollars worth of company stock. They’re being leaned on hard to diversify so they don’t take a hit like Enron/UAL employees, etc. should something go wrong.

They were hired on decades ago as part-time help. Now they’re executive management. They’re diversifying, retiring, buying toys, estate planning – it’s not necessarily a nefarious reason that’s behind it.

[moneyrunner]

Exactly. One of the most lasting lessons learned since the technology bubble burst it that diversification reduces risk.

No matter how much faith you have in you company, you have to consider the unexpected. For that reason, a lot of the execs are putting money into bonds, hedge funds, other company’s stocks; something that they would not have dreamed of in the go-go years of the late 90s.

[arete]

Just went over to the Thomson Financial site to check out the latest figues and it appears that so far August is shaping up to be another sharp month of insiders selling. Thomson is reporting $965,332,000 in selling vs. $44,983,000 in buying for overall (large, mid, small and micro cap) stocks. Insiders sales of the DOW and NASDAQ 100 are extremely high with the ratio for the DOW at an eye popping 1226.16 to 1 and the NASDAQ at an incredible 2092.43 to 1. On the bright side, insider selling of the S&P 500 is at a relatively low of 31.41 to 1. These numbers appear to be so far over the top that I am going to continue checking them as the month progresses. Thanks for posting the article.

Richard W.

[txhurl]

Haven't seen you much and not sure if you caught this: check out this from the Pre-Depression Indicators Forecasted Rosy Economy thread, particularly these quotes, brought to us by gcruse:

The outlook of the world today is for the greatest era of commercial expansion in history. The rest of the world will become better customers."
-Herbert Hoover, speech at San Francisco, July 27, 1928.

"Unemployment in the sense of distress is widely disappearing.... We in America today are nearer to the final triumph over poverty than ever before in the history of any land."
-Herbert Hoover, speech accepting the Republican nomination, Palo Alto, CA, Aug. 11, 1928.

"Secretary Lamont and officials often Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board."
-The New York Times, Oct. 14, 1929.

"The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis."
-Herbert Hoover, statement to the press, Oct. 25, 1929.

"Conditions do not seem to foreshadow anything more formidable than an arrest of stock activity and business prosperity like that in 1923. Suggestions that the wiping out of paper profits will reduce the country's real purchasing power seem far-fetched."
-The Wall Street Journal, Oct. 26, 1929.

"Believing that fundamental conditions of the country are sound and that there is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week, my son and I have for some days been purchasing sound common stocks. We are continuing and will continue our purchases in substantial amounts at levels which we believe represent sound investment values."
-John D. Rockefeller, Sr., Oct. 30, 1929.

"There are no great failures nor are there likely to be."
-Monthly Review, National City Bank, Dec. 2, 1929.

"Never before has American business been as firmly entrenched for prosperity as it is today. Steel's three biggest customers, the automobile, railroad and building industries, seem to me to justify a healthy outlook. This great speculative era in Wall Street, in which stocks have crashed, means nothing in the welfare of business. The same factories have the same wheels turning. Values are unchanged. Wealth is beyond the quotations of Wall Street. Wealth is founded in the industries of the nation and while they are sound, common stocks may go up and stocks may go down, but the nation will prosper.
-Charles M. Schwab, Chairman of the Board, Bethlehem steel Corp., address before the Illinois Manufacturers Association, Chicago, Dec. 10, 1929.

"I see nothing in the present situation that is either menacing or warrants pessimism. During the Winter months there may be some slackness or unemployment but hardly more than at this season each year. I have every confidence that there will be a revival of activity in the Spring and that during the coming year the country will make steady progress."
-Andrew W. Mellon, New Year's Day message, Jan. 1, 1930.
"Trade recovery now complete, President told. Business survey conference reports industry has progressed by its own power. No stimulus needed. Progress in all lines by the early spring is forecast."
-New York Herald Tribune headline, Jan. 24, 1930.

"The psychological effect of stock market activities on business is, I think, usually overemphasized.... I do not think that the fall in security prices will itself cause any great curtailment in consumption,..."
-E. H. H. Simmons, President, The New York Stock Exchange, Jan. 26, 1930.

"Business will be all right. I am not in the least pessimistic. You notice that everybody is anxious to be at work; that is one of the healthiest signs of the times. -- There is no such thing as overproduction.
-Henry Ford, quoted in the New York Herald Tribune, July 31, 1930.

"The average man won't really do a day's work unless he is caught and cannot get out of. There's plenty of work to do, if people would do it."
-Henry Ford, quoted in The New York World-Telegram, March 18, 1931.

"With the exception of the difficulties that have arisen as a result of the drastic deflation of commodity prices, the business horizon is clear.... we all know that the present period cannot long endure."
-Richard Whitney, President of the New York Stock Exchange, address before the Merchants Association, New York, Sept. 10, 1930.

"The country is not in good condition."
-Calvin Coolidge, Jan. 20, 1931.

[arete]

That puts things back in focus.

Richard W.

[headsonpikes]

You forgot...

"Prosperity is just around the corner!"

[woofie]

On the other hand hww many times has the following statement proven false..."Its the end of the world"?

[jwh_Denver]

And we're called doom and gloomers.

[Orangedog]

On the other hand hww many times has the following statement proven false..."Its the end of the world"?

Yeah, but how many times does it have to be right to really screw up your day? ;)

[LiteKeeper]

bump

[Stallone]

"Afghanistan will prove to be a quagmire, another Vietnam. Russia, Britain, etc. have all tried and failed miserably."

"War with Iraq will lead to the death of tens of thousands of Americans, and start another world war. The fierce million-man Republican Guard is formidable."

"I did not have sex with that woman, Miss Lewinsky."

What do these three have in common?

A Raghead, a Baghdad, and a Head-Hag.

The lesson is that doom and gloom prognasticators are not infallible.

[Stallone]

Diversification is also the reason many portfolios under-perform, particularly in mutual funds.

If you bought oil and technology stocks, over the last three years, you would be, on-average, exactly where you started. Congratulations. While that's better than losing, the point is that the risk demands commensurate reward.

However, had you bought real estate, you would be kicking ass.

The whole reason for choosing one stock or sector over another is you are looking for exceptional performance.

[FairWitness]

Executives sold $2.4 billion worth of their own companies' stock in July, a number that is right in line with the historic five-year monthly average for selling. But they bought only $73 million worth of stock last month, giving July the lowest monthly level of insiders' stock purchases in two years,

So the evidence is not that insiders were selling an unusually large amount of stock, but that they were buying less than usual. That does not strike me as a rush to get out of the market.

[doosee]

The real research I would like to see is where are these sellers putting their bucks. Most may not be putting it into MMF at 1% or so. They can't all be buying real estate. No, at least my guess is they are fishing for growth markets in other companies. Dell, MSFT for example are not growth stocks to me... Biotech, Pac Rim stocks, are two choices.

[Stallone]

I agree.

Exceptional performance in investments is always opposite to the herd. Real estate still has legs on a case-by-case basis where income/potential exceeds expenses by a wide margin. It is also a great time to develop land or increase units or density on existing projects.

In stocks, look for those that have suffered greatest for the wrong reasons. Many stocks in health care, technology, international, etc. have been swept aside, some unfairly.

I am only interested in stocks that portend increased near-term and reliable earnings. Stay away from the lottery/no earning stocks except for a small (<5%) portion of the portfolio in your unique area of specialized knowledge.